The new auditor’s report

Following the issue of European Regulation no 537/14 on the audit of Public Interest Entities (PIE) and the new International Standards on Auditing, the structure and content of the auditor’s report for such entities has undergone significant change.

In particular, the new regulation provides that auditor’s reports on PIEs (issuers of financial instruments listed on regulated markets, banks and insurance companies) shall include a specific section on “Key Audit Matters”.

This change has significantly increased the information value of the auditor’s report. The new rules governing the preparation of auditor’s report aim to improve the transparency of the audit process by dealing with the most important matters emerging during the audit.

The new regulation came into force for reporting periods commencing on or after 17 June 2016. For entities whose reporting period coincides with the calendar year, it was adopted with effect from financial statements as at 31 December 2017.

Our analysis looked at auditor’s reports on consolidated financial statements or, solely for those companies that do not prepare consolidated financial statements, the auditor’s reports on the financial statements of 221 companies published by 15 June 2018.

The study analyses the number and nature of the Key Audit Matters, examining the most recurrent matters and the related audit response, as well as looking at the business segments of the issuers.

The study also looks at the other distinguishing features of auditor’s reports (type of opinion, treatment of matters regarding significant going concern uncertainty, presence of emphases of matter, etc.).

Finally, the study sets out considerations regarding future challenges. In particular, it looks at the impact on auditor’s reports of the expected effects on financial statements of application of the new accounting standards IFRS 9, IFRS 15 and IFRS 16 and how treatment of matters emerging in the first year of adoption may evolve.